Steve Hamilton is a Tampa native and a graduate of the University of South Florida and the University of Missouri. He now lives in northern Kentucky. A career CPA, Steve has extensive experience involving all aspects of tax practice, including sophisticated income tax planning and handling of tax controversy matters for closely-held businesses and high-income individuals.

Friday, December 22, 2017

Individual Changes In The New Tax Bill

We have a
new tax bill, and it is considered the most significant single change to the
tax Code over the last 30 years. Here are some changes that may affect you:

·Your tax rate is likely going down. A
single person making $150,000, for example, will see his/her rate dropping from
28% to 24%. A married couple making $250,000 will see their rate drop from 33%
to 24%. Whether married or not, the top rate has gone from 39.6% to 37%.

·You will lose your personal
exemptions next year. For 2017 the exemption amount is $4,050 for you, your
spouse and every tax dependent.

·To make up for the loss of the
personal exemptions, your standard deduction is going up in 2018. A single
taxpayer will increase from $6,350 to $12,000. A married taxpayer will go from
$12,700 to 24,000.

·Many of your itemized deductions will
be limited or go away altogether next year:

oFor
2017 you can deduct interest on up to $1 million on a mortgage used to buy your
home. In 2018 that limit will drop to
$750,000.

oFor
2017 you can deduct interest on (up to) $100,000 of home equity loans. In 2018
you will be unable to deduct any interest on home equity loans.

oFor
2017 you can deduct your state and local income and real estate taxes, without
limit. In 2018 the maximum amount you can deduct is $10,000.

oFor
2017 you can deduct a personal casualty loss (such as a car flooding), subject
to a $100-deductible-per-incident and-10%-of-income threshold. You will not be
able to deduct such losses in 2018, unless you are in a Presidentially-declared
disaster zone.

oFor
2017 you can deduct contributions up to 50% of your income. In 2018 that
increases to 60%.

oIf
your contribution provides the right to purchase seat tickets to an athletic
event – say to Tennessee or Ole Miss – you can presently deduct a percentage of
that contribution. In 2018 you will not
be able to deduct any portion.

oIn
2017 you can deduct employee business expenses, certain similar or investment
expenses, subject to a 2% disallowance. Starting in 2018 no 2% miscellaneous
deductions will be allowed.

·Medical expenses – for some reason –
go the other way. Congress reduced the threshold from 10% to 7.5%, and it made
the change retroactive to January 1, 2017. It is one of the few retroactive
changes in the bill, and it will exist for only two years – 2017 and 018.

·Get divorced and you might pay alimony.
For 2017 you can deduct alimony you pay, and your ex-spouse has to report the same
amount as income. Get divorced in 2019 or later, however, and your alimony will
not be deductible, and it will not be taxable to your ex-spouse.

·Move in 2017 and you may be able to
deduct your moving expenses. There is no deduction if you move in 2018 or
later.

·You still have the alternative
minimum tax to worry about in 2018, but the exemption amounts have been
increased.

·If you own a business, chances are
the new tax law will affect you. For example,

oIf
you own a C corporation, you will now pay tax at one rate – 21%. It does not
matter how big you are. You and Wells Fargo will pay the same tax rate.

oIf
you are self-employed, a partner or a shareholder in an S corporation, you
might be able to subtract 20% of that business income from your taxable income.
There are hoops, however. The new law will limit your deduction if you do not
have payroll or have no depreciable assets, although you can avoid that limit
if your income is below a certain threshold.

·Your kid will provide a larger child
tax credit. The credit is $1,000 for 2017 but will go to $2,000 in 2018.

What can you
do now to still affect your taxes?

·Rates are going down. Delay your
income if you can.

·For the same reason, accelerate your
expenses, especially if you are cash-basis.

·Pay your 4th quarter state (and city) estimated tax by December 31. You may even want to
sweeten it a bit, although the tax bill does not permit one to prepay all of
2018’s state tax by December 31.

·Remember that you are losing your 2%
miscellaneous deductions next year. If you use your car for work and are not
reimbursed, you will lose out. It is the same for an office-in-home.

·Congress is limiting or taking away
many popular itemized deductions and replacing them with a larger standard
deduction. This means your remaining deductions – mortgage interest, taxes
(what’s left) and contributions are under pressure to exceed that standard
deduction. If you do not think you will be able to itemize next year, you may
want to accelerate your contributions to 2017. Remember that the check has to
be in the mail by December 31 to claim the deduction in 2017.

There are
some surprises to be had, folks. I was looking at an estimated 2018 workup for
a routine-enough-CPA-firm client. The result? An over 16% tax increase. What
caused it? The loss of the personal exemptions. It was simply too much weight
for the increased standard deduction and slightly lower tax rates to pull back up.

I hope that is not the norm. This is a hard-enough job without having that conversation.

About Me

Thirty years years in tax practice. It's a long time, and I have seen virtually everything short of the fabled tax-exempt unicorn. I was raised in Tampa, went to school in Missouri, taught at Eastern Kentucky University, lived in Georgia, got pulled to Cincinnati when I married, have in-laws in England and a daughter going to the University of Tennessee. I am not sure where I will wind up next, but I hope there is better weather.